Stochastic Oscillator

The Stochastic Oscillator compares a security's closing price to its price range over a given period. It generates two lines: %K (the fast line) and %D (the slow line, a moving average of %K). Both oscillate between 0 and 100, with readings above 80 considered overbought and below 20 considered oversold.

How the Stochastic Oscillator Is Used in Trading

The primary signal is the %K/%D crossover. When %K crosses above %D in oversold territory (below 20), it generates a buy signal. When %K crosses below %D in overbought territory (above 80), it generates a sell signal. These crossovers are especially reliable in range-bound markets.

Stochastic divergence, similar to RSI divergence, occurs when price makes a new high or low but the Stochastic fails to confirm. This is a leading indicator of potential reversals and is particularly useful on higher timeframes like H4 and D1.

Many traders use the "slow stochastic" (smoothed version) to reduce false signals. The slow stochastic applies additional smoothing to %K, making the signals less frequent but more reliable. It pairs well with trend indicators like ADX or moving averages for confirmation.

Access via API

Returns %K and %D values for the Stochastic Oscillator.